The Association of Professional Financial Advisers has commended the FAMR’s recognition that part of the problem includes regulatory costs imposed on financial advisers, along with the impact of the regulatory framework.
In response to the Financial Advice Market Review input paper, which was launched by HM Treasury and the FCA on Monday (12 October), Apfa said the government should focus on ways to reduce the cost of giving advice.
It said this could first be done by addressing the problem of liabilities faced by financial advice firms and the cost this involves, and secondly by reducing the cost of regulation.
Chris Hannant, director general of Apfa, said: “I am pleased to see that the points we have been making are been listened to, as the options being considered include a long-stop and reducing the cost of providing advice.
“A driving factor for the focus on ever higher net worth individuals has been the rising cost of being in the advice business, so part of the solution must be to reduce the cost of giving advice.
“The growth of a compensation culture has led to a considerable impact on advice firms with the cumulative effect of Financial Ombudsman Service compensation, Financial Services Compensation Scheme levies and professional indemnity insurance.
“These costs not only are passed on to consumers, but also prevent firms from investing in greater capacity, expanding and innovating.
“A balanced and comprehensive safety net needs to be designed involving the introduction of a long-stop and reform of the Fos and FSCS.”
The review will consider a single longstop or introducing varied limitation periods linked to the terms of products.
For example, differential time limits which reflect the nature of products or advice, so that liability extends for a longer period when it relates to longer-term products (for example, 25 years for a mortgage).
Enhanced professional indemnity insurance and a compensation fund that would pay out in the event of a justified claim older than 15 years against an individual firm, are also being considered.
Last month Mr Hannant told Financial Adviser that despite recent talk of insurance for advisers to cover their unlimited liability a 15-year limit is “still what we want”.
At the start of September Mr Hannant said the Financial Conduct Authority was more likely to lean towards an insurance solution to limit advisers never-ending liabilities, rather than support the 15-year long-stop.
